Good Morning!

Except for the heartless soul responsible for dismantling this art piece in San Francisco yesterday. In times like these, San Francisco needs every ounce of beauty it can get!

🏦 The Fed released its latest Senior Loan Officers Opinion Survey (SLOOS) yesterday. The report gives us insights into credit conditions across small-, mid-, and large-sized banks. In short, the US loan market is shrinking rapidly. Banks reported tightening lending standards for all loan categories in Q2. Stricter standards have led to continued softening in demand. Commercial and industrial (C&I) loans have been hit particularly hard, with the share of medium and large businesses reporting tightening terms crossing above 50% for the first time since Q2 2020. Looking forward, banks expect even tighter conditions and further deterioration in loan demand.

🏭 Regional factory activity in Texas has been declining for over a year. The Dallas Fed’s Manufacturing Index contracted for the 15th consecutive month in July, albeit at an improved pace over the previous two months. New orders declined to the lowest since November while production slipped to its lowest reading since June 2016 (excluding the pandemic). On the bright side, manufacturers are the most optimistic about future general business activity since April 2022.

📉 In January, the bond market looked primed for a rebound year after an abysmal 2022. So far, bond bulls have been largely disappointed. The culprit? Stocks, baby! According to SentimenTrader, the spread between investor sentiment in stocks relative to bonds is at its highest in at least 24 years. Current investor preferences are clear, but how long they will last is another question: equities earnings yield is at its lowest premium relative to Treasury yields since 2007 (chart), making stocks look comparatively expensive (and risky).

🚨 The “smart money” is panicking. According to Goldman Sachs, July was one of the largest months for active de-grossing among hedge funds in recent years. In fact, last week’s total flows were the highest since the GameStop squeeze in 2021. Predictably, short-covering has been the driving force as hedge funds have been caught offside and forced to chase the rally. Over the past 2 months, notional short-covering was the largest since 2016 (chart).

🛢️ Last week, US oil prices crossed above the $80 mark for the first time since mid-April. Also last week: oil ETFs recorded their largest outflows in over a year. Investors withdrew more than $400 million over the period, the most since in 16 months. Leading the way was a record exodus from the market’s largest ETF totaling close to $200 million. Meanwhile, new data from the Energy Information Administration revealed US crude oil and petroleum products supplied—which is used as a proxy for demand—reached the highest level since August 2019 in May.

📊 Yesterday’s highlights:

$ANET Arista Networks: $1.58 EPS (vs. $1.44 expected) ✅, $1.459 billion (vs. $1.378B expected) ✅.

• Despite concerns about reduced spending plans among its largest customers, earnings and revenue jumped 46% and 39% YoY, respectively.

• The company continues to battle shorter lead times and reduced visibility.

• Current quarter earnings guidance was in line with estimates while full-year growth exceeded them.

👀 What we’re watching today:

• $MRK Merck

• $PFE Pfizer

• $AMD Advanced Micro Devices

• $HSBC HSBC Holdings

• $CAT Caterpillar

• $SBUX Starbucks

• $BP BP

• $UBER Uber

• $VRTX Vertex Pharmaceuticals

• $ETN Eaton

• $MO Altria

• $ITW Illinois Tool Works

• $MAR Marriot

• $MPC Marathon Petroleum

• $EPD Enterprise Products

• $PXD Pioneer Natural

• $ECL Ecolab

• $IDXX IDEXX Labs

• $AFL Aflac

• $AIG American International Group

• $IQV IQVIA Holdings

• $SYY Sysco

• $ROK Rockwell Automation

• $EA Electronic Arts

• $AME AMETEK

• Canadian stocks: A boost in commodity prices has helped lift the TSX to a fresh 3-month high.

• Resilient UK consumer: Mortgage approvals and consumer credit increased in the UK in June despite higher interest rates.

• UK home prices: House prices in the UK experienced their largest annual drop in 14 years.

• Price target: Oppenheimer Asset Management’s new 4,900 price target is the highest on Wall Street.

• Electric freight: Tesla is looking to build an electric semi-truck charging station route from Texas to California.

• Asian expansion: Binance has launched a (fully-compliant) crypto trading platform in Japan.

• Carbon credits: One of the US’ largest forest-carbon firms is launching a carbon offsets trading platform.

• Nuclear power: America’s first new nuclear reactor in 7 years is generating clean, zero-emissions energy for ~50k homes and businesses in Georgia.

• Birkenstocks: L Catterton plans to launch an IPO for Birkenstock in September that could fetch a +$8 billion valuation.

• eVTOL deal: Shares of Archer jumped over 40% after the air taxi maker secured a $142 million deal with the US Air Force.

• Cannabis M&A: Cresco Labs and Columbia Care have called off their $2 billion merger.

• Copper stake: Glencore will buy Pan American’s 56% stake in an Argentinian copper project for $475 million.

• Software takeout: Francisco Partners and TPG have teamed up to take software provider New Relic private in a $6.5 billion takeout.

• https://www.federalreserve.gov/data/sloos/sloos-202307.htm

• https://www.bloomberg.com/news/articles/2023-07-31/hedge-funds-throwing-in-towel-on-stocks-as-rally-forces-unwind

• https://thedailyshot.com/2023/07/24/extra-cash-tends-to-burn-a-hole-in-americans-pockets/

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